Sun to cut up to 5,000 jobs

Sun Microsystems plans to lay off as many as 5,000 employees, sell real estate and "simplify" its product line in an effort to boost profits.

by
Patrick Thibodeau and Robert McMillan
, | 02 Jun 06

Sun Microsystems plans to lay off as many as 5,000 employees, sell real estate and "simplify" its product line in an effort to boost profits, its newly appointed CEO Jonathan Schwartz said.

In a conference call with financial analysts after the close of markets on Thursday, Schwartz, who was appointed CEO just over a month ago, laid out a restructuring plan that gave a broad overview of strategic direction that will rest on network computing and IT to support it, but he didn't provide the product-by-product line impact that IT managers look for.

Schwartz said Sun "will be simplifying our product line and reducing duplicative research and development" and highlighted products key to the company’s future, such as its eight-core processor Niagara server. But he didn’t explain what research and development the company now considered duplicative or how that product line would be simplified.

Tithes of trouble

Similiarly, in detailing its headcount reduction, Sun offered only a potential range, between 4,000 to 5,000, or 11 per cent to 13 per cent of its workforce of 37,500. The company didn't specify what areas in the company will be affected. Sun will also sell some offices. In total, the company is expecting annual savings between $480 million to $590 million from these changes.

Schwartz, a ten-year Sun veteran was appointed by its board just over a month ago after longtime CEO and co-founder Scott McNealy stepped down. McNealy will continue as board chairman.

Schwartz took leadership of a company that posted a loss of $217 million on the day of his appointment. Despite the loss, Sun officials pointed to the increasing revenue in its most recent quarter. Sun's revenue for the third quarter of fiscal 2006, which ended March 26, was up 21 per cent, year over year, totalling $3.2 billion for the period.

Despite the financial problems, Schwartz didn’t signal a workforce cut and said in April that the company may only need some “pruning.”

But what was announced is "a serious layoff," and its impact on the company is yet to be determined, said Charles King, an analyst at Pund-IT in Hayward, Calif. "What I think will be extremely telling is where those layoffs will come from," he said.

Products meet the goal

Schwartz said the cutbacks won’t affect customers, and instead said the company will be focusing on products that meet that goal.

”To help you interpret that, we will build all products at Sun from Java, Solaris, StorageTek and from a newly unified Sparc and x64 Sun Fire platform,” said Schwartz, referring in the latter case to its 32-bit and 64-bit x86 systems.

Three products “that represent the future of such system innovation,” said Schwartz include its Niagara servers, some new StorageTek platforms, and “Thumper,” a product that combines servers with storage.

Rob Enderle, an independent analyst in San Jose, said Schwartz was "prepping the company for sale."

The heavy focus on cost reduction and research and development reduction, the lack of specifics about how many and whom was going to be laid off, indicated that Sun is trying to make the company more attractive to a potential suitor, Enderle said. "The primarily focus on this effort is to prime this company for sale," he said.